Lec 2

Principles of Economics

Lecture Overview

• Course: Principles of Economics

• Instructor: Dr. Noha Ghazy

• Contact: noha.ghazy@giu-uni.de

• Date: Spring 2025

Lecture Content

• What is a Market?

• Understanding Demand

  • Demand Curve

    • Individual Demand vs Market Demand

    • Shifts in the Demand Curve

• Understanding Supply

  • Supply Curve

    • Individual Supply vs Market Supply

    • Shifts in the Supply Curve

Market Fundamentals

Definition of a Market

• A market is a group of buyers and sellers for a specific product.

Competitive Markets

• Characteristics:

  • Many buyers and sellers exist.

  • Each has a negligible impact on pricing; they are "price takers."

• Perfectly Competitive Market Assumptions:

  • All goods are identical.

  • Market participants cannot affect prices individually.

Demand

Understanding Demand

• Quantity Demanded: Amount consumers are willing to purchase at various prices.

• Law of Demand: Quantity demanded decreases as price increases (ceteris paribus).

Demand Schedule

• Definition: A table depicting the relationship between price and quantity demanded.

• Example: Helen's demand for lattes illustrates the law of demand.

Individual Demand vs Market Demand

• The overall market demand is the total of individual demands at each price.

• Example: For the latte market, if Helen and Ken are buyers, their individual demands at various prices can be summed to find market demand.

Supply

Understanding Supply

• Quantity Supplied: Amount producers are willing to sell at various prices.

• Law of Supply: Quantity supplied increases as price increases (ceteris paribus).

Supply Schedule

• Definition: A table showing the relationship between the price of a good and quantity supplied.

• Example: Mulliri's supply of lattes expresses this relationship.

Market Supply vs Individual Supply

• Market supply is the sum of individual suppliers' quantities at each price.

• Example: If Mulliri and another seller supply lattes, their combined offers illustrate market supply.

Demand Curve Shifters

Overview

• The demand curve reflects price impact on quantity demanded excluding other factors.

• Non-Price Determinants can shift the demand curve.

Factors Influencing Demand Curve Shifts

1. Number of Buyers: An increase shifts demand curve to the right.

2. Income:

   • Normal goods: Demand increases with rising income.

   • Inferior goods: Demand decreases with rising income.

3. Prices of Related Goods:

   • Substitutes: Increase in one good's price raises demand for its substitute.

   • Complements: Increase in one good's price lowers demand for its complement.

4. Tastes: Changes that favor a good increase demand, shifting the curve right.

5. Expectations: Anticipated future changes can affect current demand.

Summary of Influences on Demand

• Movements in demand curve due to price changes vs shifts due to other factors (number of buyers, income, related goods, tastes, expectations).

Supply Curve Shifters

Overview

• The supply curve indicates how price influences quantity supplied.

• Non-Price Determinants can shift the supply curve.

Factors Influencing Supply Curve Shifts

1. Input Prices: A decrease in input costs can increase supply.

2. Technology: Advancements can improve efficiency and increase supply.

3. Number of Sellers: More sellers in the market increase overall supply.

4. Expectations: Anticipations about future prices impact current supply decisions.

Summary of Influences on Supply

• Movements along the supply curve due to price vs shifts caused by changes in inputs, technology, seller count, and expectations.